Premier Inn owner Whitbread will wind down its chain of branded restaurants and recycle £1.5bn of hotel land under a sale and leaseback scheme. That puts 3,800 jobs at risk as the FTSE 100 group abandons its five-year plan in response to increasing cost pressures and a restive activist investor.
Britain’s largest hotel operator has been looking for ways to boost earnings and protect margins after the autumn budget brought a sharp rise in business rates and employers’ national insurance contributions. The pressure has been intensified by US activist Corvex Management, which has called on the board to launch a strategic review after its share price underperformed for a long time.
The company announced the outcome of its business review on Thursday and unveiled a new five-year plan aimed at increasing annual profits by £275 million and increasing shareholder returns by £2 billion. Investors reacted icily to the plan, with shares falling 6 per cent, or 151p, to £22.34 in early trading.
The overhaul centers on extending Whitbread’s £500m restructuring of its food and drinks division. Two years ago, chief executive Dominic Paul launched what he called an “accelerated growth plan”, which saw 112 Beefeater and Brewers Fayre sites converted into 3,500 new bedrooms and a further 126 restaurants sold. The group is now going one step further by replacing all 197 of its remaining branded outlets with what it calls a “more efficient integrated restaurant” format. The move, which is expected to deliver a return on investment of between 15 and 20 per cent by 2031, will mean up to £160 million less food and drink sales this year as a result of switching locations.
The real estate strategy is an equally important pivotal point. Whitbread, which currently owns around half of its hotels, will recycle £1.5bn worth of property to fund future growth and reduce net capital expenditure by more than £1bn over the next five years. The move will make the company a majority leased company, with ownership of the property dropping to 30 to 40 percent.
Paul defended the realignment as a pragmatic response to “significant cost increases in the form of business rates and social security, as well as the implicit market discount on our inherent value”. He added: “Owning a significant proportion of our properties is a unique strength that will drive Premier Inn’s growth while supporting our resilience as a business, supported by a strong balance sheet. But we can improve our approach. We will realign our capital expenditure and recycle more of our owned properties to deliver higher margins and returns, reducing our capital intensity and increasing cash returns to shareholders.”
The strategic realignment was accompanied by a series of full-year results that underlined why the Board of Directors sees a need for action. Sales were broadly flat at £2.9bn in the 12 months to the end of February, in line with City forecasts. Profit before tax fell 19 percent to £298 million after taking £130 million of impairment charges related to the restaurant’s restructuring. The group maintained its full-year dividend at 97p, with a final payout of 60.6p per share.
Whitbread’s move away from its branded restaurant tradition and towards a leaner, lease-intensive model is likely to be seen as a game-changer for the hospitality sector as a whole. Given the ongoing reassessment of corporate rates, employer NICs and stubborn wage inflation, even the largest operators are concluding that capital-light growth and aggressive cost discipline are no longer an option.
